Kleins chain to close 165 stores in Australia’s largest retail system collapse

In the single largest failure of a retail franchise in Australia since the collapse of Cut Price Deli in the mid 90’s, retail jewellery chain Kleins will close 130 franchised and 35 company-owned stores in the next few weeks as the Australian operations are wound up.

In an announcement last week, administrators Ferrier Hodgson said that it had received 36 expressions of interest in the business, eight of which had lodged indicative offers, but none were prepared to buy the business as a whole and reinvest in repositioning and rebuilding the brand.

Unsecured creditors are not expected to receive any of the $25 million owed by the company, while franchisees are now slashing prices by up to 70% to clear stock before their retail leases (which were all held by Kleins) are terminated.

A rescue package which required franchisees to each contribute $1,000 to finance the initial stages of a bid to buy the insolvent retailer was not successful, with the bid’s authors now changing their focus on pursuing the company’s directors and assets amid claims that unsustainable rental subsidies and income guarantees were offered as inducements to franchisees to invest or to remain in the system.

Most media reports have concentrated on the collapse of the chain as a whole, but in reality, each franchisee will soon be without a business or livelihood, and many will still be in debt long after their shop doors close for the last time.  Read more 1  Read more 2  Read more 3

(See related Kleins story below)

Franchisees helpless passengers in Kleins catastrophe

The current implosion of the retail jeweller Kleins has again brought into sharp focus the tied destinies of franchisees with their franchisor.

Despite being around for 26 years, despite its large number of stores, and despite its wholesale and international operations, Kleins is now in its final death throes after the company’s administrators last week announced that out of 36 expressions of interest, none were prepared to buy the business.

In other words, it was too far gone to be rescued, and needed to be put out of its misery. And because the franchisor held the head leases on all of its franchised locations, it means the end of the line for its franchisees too. Read more

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Franchisee wins sales award and goes into receivership on same day

A Clark Rubber franchise that was awarded for achieving the highest sales growth in the network was placed in receivership on the same day it won the award, according to a media report. An article in Inside Retailing this week reported that the closure of the Townsville franchise, a stalled growth strategy and tough economic conditions were serious concerns to Clark Rubber management and its franchisees at the group’s national conference earlier this month.

A decision to increase store sizes, coupled with water restrictions and tightened consumer spending has caused the chain to consolidate, including cutting costs and staffing levels at head office, according to a company statement. The statement also highlighted that the chain’s recent conference was attended by a record number of franchisees, who regarded it as the best Clark Rubber conference yet.

Click here to read the full Inside Retailing article, which also comments about Allphones and Kleins and a generally difficult trading environment for retail franchisors;

Click here to read the Clark Rubber response to the Inside Retailing article.

Ketchell case goes to High Court

The landmark Ketchell case was heard in the High Court on Tuesday, June 10, with a decision expected possibly as early as next month. The case is seen by many as precedent-setting and hinges on a New South Wales Court of Appeal finding that a franchise agreement is deemed to be illegal, where the franchisor (Master Education Services Pty Ltd) had not received a written statement from the franchisee (Ketchell) to state that they had received, read, and had reasonable opportunity to understand the franchisor’s disclosure document and the Franchising Code of Conduct. The Franchise Council of Australia (FCA) funded the High Court appeal by up to $200,000. Two recent legal cases involving similar issues to the Ketchell case have resulted in entirely opposing views, the most recent of which is the Allphones case (see separate story below).  Read more 

Failed franchisee sues franchisor for work performed in franchise

An action against the Bank of Queensland by a former New South Wales franchisee seeking compensation for work performed for the Bank under their franchise agreement will proceed after the Bank lost a motion to have the case dismissed.

The claim by former franchisee Traderight Pty Ltd under s106 of the NSW Industrial Relations Act “whereby a person performs work in any industry” arises from the termination of their Bank of Queensland franchise in 2006. The franchisee claims it was misrepresented as to the profitability of the business, sought to have the franchise agreement and related guarantees and securities declared void, and to instead be paid compensation for losses as “fair recompense for work and services”.

The NSW Supreme Court decision earlier this month allows the case to be heard. The potential implication for franchisors that work performed by franchisees under franchise agreements in NSW could create some kind of employment arrangement has wide-reaching consequences. Read the court judgement

The Bank of Queensland has also come under fire in a recent article in The Australian by business commentator Peter Switzer, who writes that some franchisees are “dead men walking”, and are only being kept afloat by further loans from the Bank of Queensland which, because of their circumstances, would not otherwise be granted by another bank. Read more

No rush for good faith provision

Federal Small Business Minister Craig Emmerson has hosed-down speculation of a change to the Trade Practices Act to include a good faith provision that would potentially preserve a franchisee’s goodwill at the end of a franchise term if an agreement is not renewed. Recommendations for franchisors to negotiate in good faith with their franchisees emerged from recent state inquiries into franchising, and was part of the then Opposition’s small business policy platform before winning government late last year.  Read more

Chocolate retailer fined $120,000 for $2,445 AWA underpayment

Chocolate retailer Darrell Lea has been fined $120,000 by the Federal Magistrates court for underpaying 12 young staff a total of $2,445. An investigation by the Workplace Ombudsman alleged that the staff were bullied into signing the Australian Workplace Agreements as part of a company strategy to abolish award conditions. The staff have since been repaid and an apology issued. Read more

Court decision raises prospect of class action against franchisor

A recent Federal Court decision against mobile phone retailer Allphones, which found that it dishonestly withheld $75,000 of mobile phone plan commissions from one of its franchisees, has raised the prospect of a class action by other franchisees against the franchisor, according to a report in The Australian. Allphones has rejected the criticism of the court, maintaining that it acted to secure the network by safeguarding against the cancellation of carrier agreements.

The Federal Court case found that Allphones had dishonestly withheld $75,000 of commissions from a franchisee who in turn defrauded the franchisor of $32,000 in royalties by “unlocking” mobile phones, sold them at a higher price than “locked” phones, and pocketed the difference.

In the judgement, a reference to the ongoing Ketchell case described as “plainly wrong” a finding by the New South Wales Court of Appeal finding that a franchise agreement was invalid if a franchisee did not provide a written statement they had received, read, and had reasonable opportunity to understand the franchisor’s disclosure document and the Franchising Code of Conduct.

A separate Federal Court action by the ACCC against  Allphones alleges the company failed to comply with the Code, as well as engaged in misleading, deceptive and unconscionable conduct toward its franchisees.  Read more 1;  Read more 2;

NBL franchise jeopardized by Sydney Kings collapse

The Sydney Kings franchise in the National Basketball League (NBL) is all but dead following the appointment of liquidators last week, and calls for the arrest of the team’s owner for allowing it to trade for up to two years while insolvent. Meanwhile players have lost their livelihoods and buyers only have until June 30 to resurrect the franchise and meet stringent NBL conditions. The collapse of the Sydney Kings, and the dire financial situation of fellow NBL team the Brisbane Bullets has called into question the future viability of the entire NBL sporting franchise. Read more 1   Read more 2  Read more 3  Read more 4

Flight Centre delays Jetset/Qantas takeoff

Plans to merge the travel operations of Jetset Travelworld and Qantas Holidays were deferred at the 11^th hour this week, after rival Flight Centre announced it would end its preferred supplier relationship with Qantas Holidays. Jetset deferred a meeting of shareholders to vote on the deal this week while it assesses the impact of the Flight Centre announcement on the Qantas Holidays business. However despite the delay, Jetset chief executive Michael Reed was confident the deal would go through, with Qantas Holidays taking 58% of the merged group. Jetset Travelworld has around 700 travel agencies and is the largest travel retail group in Australia. Read more 1   Read more 2

Other franchise news:

- New advertising agency for Gloria Jeans Coffees; Opens first store in Jordan;

- Video Ezy inks confectionary deal with Campbells for national supply;

- Tatts tiff with new rival over newsagent counter space;

- 30% increase in profit for McDonalds;

- Tax Office to target cash economy – restaurants, cafes and building companies under spotlight;

- Small Business Minister under fire for hands-off approach;

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FRANCHISE JOBS

Positions Vacant:

Business Development Executive

As the largest pool service network in the world and the fastest growing franchise system in the nation, with 50% year on year growth over the last seven years, PoolWerx dominates our market place. We currently boast 50+ award-winning retail leisure stores and 250 mobile operations across Australia and New Zealand. Our rapid success is fuelled by our no-nonsense, competitive and entrepreneurial spirit which runs through our winning corporate culture.

As PoolWerx continues on its path of international growth and prosperity we are seeking a seasoned Sales Executive to manage corporate markets that will increase our dynamic organisation’s turnover including growth and market penetration, market share, as well as developing strategic alliances.

The successful incumbent will be a truly dynamic Sales Executive whose contribution will impact on the projected growth and performance of our business. Ideally respondents will have business 2 business sales experience, an appreciation for relationship management as well as a desire to be acknowledged for ones own sales performance.

Please direct enquiries for this role to:

Victoria Rogers, Human Resource Officer, Ph: 07 3217 7111 Email:

Chief Corporate Officer - Award Winning Organisation

As the largest pool service network in the world and the fastest growing franchise system in the nation, with 50% year on year growth over the last seven years, PoolWerx dominates their market place. They currently boast 50+ award-winning retail leisure stores and 250 mobile operations across Australia and New Zealand. Their rapid success is fuelled by the organisation’s no-nonsense, competitive and entrepreneurial spirit which runs through its winning corporate culture.

As the organisation continues on its path of international growth and prosperity we are seeking a seasoned Chief Corporate Officer to take charge of the organisation’s Corporate Services. This will include direct responsibility and management of the companies finance and administrative functions, IT, corporate legal as well as communication, learning and development, HR and treasury functions.

We seek an experienced Finance Executive (CPA/CA), with a demonstrable track record of financial management within a franchise organisation. Proven interpersonal skills, leadership qualities, enthusiasm, passion and dedication to the task at hand are essential qualities. The successful incumbent will be an individual who is seeking to work for an employer of choice where their success will be measured by the group’s performance and the development of team members.

Please direct any enquiries for this role to Victoria Rogers, Human Resource Officer.

Please direct enquiries for this role to:

Victoria Rogers, Human Resource Officer, Ph: 07 3217 7111 Email:

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